What the Headline Number Doesn’t Tell You About Unemployment

Earlier this year, the Federal Open Market Committee (FOMC) said that it would keep the target federal funds rate near zero as long as overall labor market conditions remain weak — and this, it turns out, could be a very long time.

Although unemployment remained broadly unchanged between March, April, and May at 6.3 percent, down from 7 percent late last year, the headline number can sometimes mask underlying weakness in the labor market. The Fed recognized this in March when it abandoned a 6.5 percent unemployment threshold in favor of maximum employment, as directed by its mandate. Although the threshold is more ambiguous, it does allow the Fed more flexibility and promotes measuring success against alternative indicators of labor market health.

For example, an interesting figure highlighted by the Bureau of Labor Statistics is the number of unemployed reentrants, or persons who had previously worked but had moved out of the labor force before beginning their current job search. The number of reentrants has increased by 237,000 between April and May this year. This increase could mean that people who were laid off due to economic weakness believe the job market is finally healthy enough to return to. However, people are sometimes forced back into the labor force for economic reasons, and given challenging business conditions and rising living costs, this could be a contributing factor.

On the bright side, the number of job losers and persons who completed temporary jobs declined by 218,000 May, which is a good sign because fewer job losers would mean the ones who are hired are being retained for longer periods of time. Another stat supporting a healthier labor market is that the number of people unemployed for more than 27 weeks — the long-term unemployed — is down by 979,000 from April last year.